HP merges PC with printer unit

Eric Auchard

SAN FRANCISCO: Hewlett-Packard Co. said it will fold its barely profitable PC business into its successful printer and imaging business, chilling speculation the computer company could spin off the printer unit.

Several Wall Street analysts have clamored for HP to split into two separate companies. The reorganization of PCs and printers under one roof shows Chief Executive Carly Fiorina is sticking to a strategy of offering a one-stop shop for computer gear.

HP said in a statement the newly formed Imaging and Personal Systems Group will be headed by 24-year HP veteran Vyomesh Joshi, head of imaging and printing -- HP's most profitable business -- in order to "accelerate profitable growth" of the combined businesses.

"The power of this combined portfolio will allow us to grow profitably," Joshi said in an interview. "This clearly contradicts any suggestion of a spin-off."

The move, which would create a combined $47 billion operating unit, can help the Palo Alto-based company rein in costs by allowing HP to design, distribute and sell PCs and printers via a single organization.

Duane Zitzner, 57, the former head of the Personal Systems Group, or PC business, plans to retire from HP. Zitzner joined HP in 1989. He had led Personal Systems Group since 1997.

Joshi, an engineer by training, is highly respected by both financial and industry analysts. Analysts' credit him with boosting printer sales and profits by speeding up how HP integrates new printing technology across its full line of products instead of letting it filter down expensive high-end products to lower-priced ones as it once did.

COMPLICATING SPIN-OFF

"It could become more difficult to spin out the printer division by itself," Merrill Lynch analyst Steve Milunovich wrote in a note to investors.

He has been a leading voice since its merger with Compaq two years ago in calling on HP to split itself into a printer and PC business selling mass-market products and an enterprise systems and storage focused on complex systems for businesses.

"HP says the move does not signal preparation for a breakup of the company, though it does seem to support our contention that printers and PCs could be spun off together," Milunovich wrote.

Several analysts familiar with the Zitzner's thinking said he left HP voluntarily. Zitzner is credited with leading HP's PC business back into profitable territory in the face of bruising competition from Dell and other suppliers.

Profits have proved elusive for the personal systems group. During the final quarter of the fiscal year ended in October, HP reported a profit of just $78 million, or 1.2 percent on sales of $6.5 billion. It was the most profit the business had generated since 2000, Fiorina had said during the report.